Advivo Accountants and Advisors share insights into valuing intellectual property to check if your business is on track.
When a business is establishing its presence in the marketplace, protecting and managing its intellectual property is critical as it can mean the difference between success or failure. That is why it is important for businesses to understand the different forms of intellectual property and manage business risk in those very early stages. This can be done through consulting with an accountant, lawyer, trademark professional, patent attorney or marketing professional at the beginning of the process.
Below are the top 10 tips for valuing intellectual property (includes trademarks & patents)
Value by definition is, ‘The value of any commercial asset is its ability to generate income.”
Having a patent or trademark or other intellectual property can sometimes not be enough on its own when determining the value of your intellectual property, therefore deeming your business unsellable. You need to ensure you have assessed the current economic market, competitors, and pricing to ensure your business can be valued accordingly.
Do you own it outright and unequivocally free from challenges and charges?
This is often the biggest inhibitor to valuing intangible assets. Poor or lack of effective documentation with employees, former directors, shareholders, contractors, etc., leads to uncertainty as to who actually owns the asset or whether it is encumbered in any way.
Is the intellectual property identifiable, and distinguishable, and able to be separated and sold off from the business as a whole, or is it just another important but piece of the business collective?
People talk about the value of the Coca Cola brand or the unique patented bottle, but it isn’t A brand it is multiple brands, trademarks, and the secret recipe and the marketing and brand identification that goes with the bottle, etc. if you sell off or cease using any one of those items does it change the business economic value?
“Start with the end in mind.”
Don’t do a quick & cheap set up of ownership structure or any aspect of IP design, documentation, or development as it may cost a fortune to fix later. Engage the experts now and get the right advice. Don’t be penny wise and pound foolish!
Document, Document, Document!
The best protection you can get is the right documentation prepared by the right people.
Systemise and proceduralise everything you do so there is no reliance on any individual that could be lost.
Keep and maintain good financial records.
How else do we value an asset if we do not have financial records of the past which enables us to prepare defendable forecasts in the future.
If there’s something confidential and integral to your sustainable competitive advantage, keep it secret and don’t let anyone that does not need to know it have access to this information.
Don’t build your business or brand around yourself, if you are the most important thing in your business, controlling all aspects, contacts/relationships, what happens to the value of your business if something happens to you?
Build in succession and avoid what is called “Personal Goodwill”.
Finally, when you think you may want a valuation done, don’t leave it till the last minute.
It takes some time to do without fail—there is tidy up work to do that will improve the value if you leave it too late. This tidy up work may not be able to be done and you could reduce the value or even worse, lose the sale.